The US Dollar (USD) has traded mixed early Monday ahead of the highly anticipated FOMC meeting on Thursday (3 AM SGT). A 25 basis point rate cut is widely expected, with market probabilities pointing to around 93% of a rate reduction. However, attention remains focused on the updated dot plot, which will offer insights into Fed members’ expectations for the rate cut trajectory through 2025 and 2026. The previous dot plot, from September, indicated four rate cuts, while the current market outlook reflects about three rate cuts. At the time of writing, the DXY was trading at 106.81.
Head and Shoulders Pattern
A potential head and shoulders (H&S) pattern remains in play, with the DXY trading near the second shoulder. Bearish momentum on the daily chart has faded, and the RSI has weakened, but the H&S pattern still holds. A rise above the “head” of the pattern could invalidate it.
“At the current levels, DXY is respecting the second shoulder. A breakout of the H&S pattern requires a decisive break below the neckline support. Key support levels to watch include 106.20/50 (23.6% Fibonacci retracement, 21-day moving average) and 105 (38.2% Fibonacci retracement of September low to November high, 50-day moving average). Resistance levels remain at 107.20 (around the shoulders) and 108 (2024 high).”
Economic Data to Watch
This week’s economic calendar includes several key releases:
- Empire Manufacturing and Prelim PMIs (Monday)
- Retail Sales and Industrial Production (Tuesday)
- Housing Starts and Building Permits (Wednesday)
- FOMC, GDP, and Existing Home Sales (Thursday)
- Core PCE, Personal Spending, Income, and Kansas City Fed Manufacturing Index (Friday)
These data points will be crucial in shaping the DXY’s direction, especially ahead of the Fed’s rate decision.